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Print media alliances to gain; analysts see growth

Salil Panchal/ Morpheus Inc in Mumbai

The last of the Indian corporate world's bastion - the print and publishing industry - too has been exposed to the winds of liberalisation. In a landmark move, the Indian government has, accepted the information and broadcasting ministry's proposal, allowing 26 per cent foreign direct investment in the print media.

This was one of the most contentious issues that some Indian corporate publishing and media houses - alongside various political parties - had opposed for decades, suggesting a threat and misuse of Indian media by larger print and media houses overseas.

Since 1994-95, as foreign broadcasting and financial content/data processing companies entered the country, the corporate climate and political stands have softened to allow for this move.

So what has the government actually done?

The government has allowed a 26 per cent foreign direct investment in the news and current affairs segment in the Indian media, and 74 per cent in the non-news, non-current affairs segment.

Thus, select and focussed trade and industry magazines, currently operated by the Indian publishing houses, stand to grow substantially.

The rider is that Indian shareholding should be significantly higher than the 26 per cent FDI. Apart from that, editorial control will remain in the hands of the Indian company and three-fourths of the editorial posts will have to be occupied by Indians.

But what does it mean for Indian print media companies?

Currently two large publishing houses have alliances (without any equity participation) with foreign print media companies. The Indian Express (through Financial Express) has a tie-up with the Wall Street Journal since 1997, to use their financial content periodically.

Similarly, Business Standard (owned by the Kotak Mahindra group) has an alliance with the UK-based Financial Times since 1996, to use their financial content and business management supplements.

In both these cases, due to previous government norms, there was no equity participation. The Mid-Day group of publications has also a small FDI stake through its IPO raised in 2000 for Mid-Day Multimedia Publications.

According to analysts tracking the media sector, these alliances stand to gain substantially. "Considering their current structure of operations and commitment to each other, the Express-WSJ alliance and the BS-FT alliance will only grow stronger," an analyst with BSE institutional brokerage firm Jamnadas Morarjee said.

Commenting on the government's move, a senior Financial Express newspaper editorial official on the condition of anonymity said: "We have an understanding to use (WSJ's) Asia and UK-related content regularly. Our readership feedback to the WSJ content has been very positive over the past year."

"He hesitated to comment on the exact future shape of the FE-WSJ alliance, but said, "Obviously all those publications which stand to gain from such a tie-up will leverage it and the Express group at this stage is in a position to do so."

A senior Mumbai-based editorial official at the Business Standard said the BS-FT alliance is more broad-based, whereby in the pre-equity set-up the Indian financial newspaper utilises not just the FT financial content, but also FT editorial and publishing expertise. With this clearance coming, equity participation from the FT publishing group appears to be a formality.

...and this opens the door for?

The government move opens the door for various Asian and UK-based print media companies which would now look for strategic tie-ups and buy-outs (in the case of specialised trade/industry magazines).

Indian companies, which may appear to be attractive investment opportunities, would be the Hindu group of publications and the Living Media publishing group.

Existing financial content and data processing companies like Reuters, Bloomberg, Dow Jones and AFP - which already have their base in India - will also seek fresh tie-ups.

They all currently operate in India through their 100 per cent owned subsidiaries. It must be noted that some of the foreign wire agencies like Reuters first came into India more than 120 years ago as financial and commodity-related data processing and feeding companies.

Publication industry set to boom

A whole range of publications from specialised infotech / computer magazines to automobile, pharmaceutical, shipping, metals, currency and trade magazines could find buyers along the way.

Markets welcome the move, media stocks up

While few Indian publishing houses are listed at the stock exchanges, key media and broadcasting company stocks rose sharply at the bourses following the government's decision.

The Kotak Mahindra Finance Company stock (which is the largest shareholder in Business Standard Publications company) closed at Rs 166.85 on the Bombay Stock Exchange on Tuesday, up 10.4 per cent against a previous close of Rs 151. Mid-Day Multimedia Ltd stock closed higher at Rs 31.25 against a previous close of Rs 26.05, while TV Eighteen (India) stock closed at Rs 81.75 against a previous close of Rs 81.

Tata Infomedia stock closed at Rs 126.8 against a previous close of Rs 107 at the BSE.

What will the foreign investor look for?

An analyst with a leading domestic financial institution said the factors determining FDI inflow into the Indian print media would be similar to those for other sectors. The rationale for the foreign investor would be:

• To tap profitable and even existing non-profitable) business houses where publication readership stands to gain;
• To be in multiple domains, which would assist his trade/business. This would definitely include the Indian print media; and
• Look at long-term tie-ups where the turnaround may be slow but profits will be high over the long term.

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